Single Homebuyers: How to Buy Your Dream House, Part III

In the last installment of our house hunting series, Singletude presented a list of questions to help clarify what you want out of a home of your own. Hopefully, the answers have fleshed out your vision of the perfect pad. Congrats! You are well on your way to becoming a single homeowner, so role again and jump five spaces to the nearest real estate agency!

Since a house is probably the most significant purchase you will ever make, it's important to find an agent who is savvy, trustworthy, and respected in the business. So before you dial a number in some random ad, ask your family, friends, and colleagues about their own homebuying experiences. Last year, a full 43% of homebuyers found their agents through referrals. If no one in your circle can make a referral, research local agents via company web sites, open houses, or even mortgage brokers. Time-tested agents are a good bet, but don't underestimate the new kids on the block, who may be more enthusiastic and accommodating.

When choosing an agent, keep in mind that he or she can work in any of three capacities--as a buyer agent, a seller agent, or, well, a double agent (actually called a dual agent). Currently, 61% of homebuyers choose a buyer agent, and they're smart to do so. An exclusive buyer agent will represent your interests in negotiations, whereas a seller agent must work against you to squeeze as much money as possible out of the sale. Exclusive buyer agents can be found at specialized agencies and will contract to work on your behalf. Since these professionals are a relatively rare breed, you may want to consult the National Association of Exclusive Buyer Agents for a referral.

If you can't locate an exclusive buyer agency, your next best option is to engage an agent who works in both capacities to act as buyer agent in your case. Again, you must make sure he or she signs a contract to act as your buyer agent. Otherwise, he or she is not legally bound to represent you! Since most buyer agents are paid on commission, splitting a percentage of the sale with the seller agent, a buyer agent who isn't committed to your interests may undermine them for his or her own profit.

Most importantly, steer clear of the dual agent, who represents both you and the seller, as well as any agent who works for the same brokerage as the seller agent. These agents have conflicting allegiances, the foremost of which is not to you!

Feel free to interview prospective agents before you choose one. If you can find an agent who has experience in the singles market, so much the better. You should also feel comfortable with the agent's personality and salesmanship, so don't be shy about asking for a trial run to see a house or two.

Once you're ready to sign a contract, remember that its terms are negotiable. You can limit the contract's length, the neighborhoods and price points it covers, even your right to be released from it should either party decide the relationship isn't working. Yes, folks, you can break up with your agent or see other people. But, as in the game of love, monogamy is highly prized. Though it's fine to work an "out" into the contract, it behooves you to be loyal to your agent. This will motivate him or her to work harder for you and save you from the competitive pressure and unpleasant commission disputes that can arise when you two-time your agent.

So by now you might be wondering when we're going to stop talking about house hunting and actually track down a fine, two-bedroom specimen. When I started this post, I thought I'd take you on a virtual house tour today, but in the interest of digestibility, I will save that tasty morsel for "Part IV." Until then, my fellow single house hunters, enjoy our wild suburbia!


If you are a single homeowner, how did you find your real estate agent? What criteria did you use when picking an agent? What did you learn from working with your agent that you can share with prospective homebuyers?


Fun Link of the Day
(This is aimed at real estate agents rather than singles. I include it here because it addresses singlism in real estate sales.)


Do you have a question for Clever Elsie about some aspect of the single life? Have a rant or rave about singlehood? Write in, and you just might see your question in a Singletude Q&A or your rant or rave in a Singletude Sound-off!

Single Homebuyers: How to Buy Your Dream House, Part I

Calling all single house hunters! So you've considered whether single homeownership is right for you, and you've decided that being home alone isn't just for formerly cute child actors. Well, you're in the nick of time. Interest rates are at an all-time low, it's a buyer's market, and President Obama just introduced a significant tax credit for homebuyers. You're ready to pluck your castle out of the sky, set it down at the end of a cul-de-sac, preferably next to an in-ground pool, and pay property taxes for the pleasure of doing so. If that sounds like a little piece of heaven to you, then it's time to figure out how to lasso your castle and bring it down to earth!

Your home may well be the biggest purchase you ever make, so the process of house hunting, bidding, and closing can be intimidating even when you have support. When you're on your own, it may seem insurmountable, especially if you're a first-time homebuyer. That's why Singletude is going to break it down into digestible steps.

Before you dial a realtor about that three-bedroom, 2.5-bath steal in the paper, you'll want to prepare yourself for the financial reality of buying your own house. This entails completing a bunch of mundane tasks before you start on the fun part. But if you do the legwork now, you'll be perfectly positioned to make a move on your dream house. Here are the steps you'll need to take in advance:



1. Got credit?
Check your credit reports from the three major credit reporting agencies, Experian, Equifax, and TransUnion. You are entitled to one free report from each agency every year. You can order them separately or all at once. If you notice anything fishy, get that squared away before you continue down the road to your new home. In this economy, lenders are tightening their fists, so you should do everything in your power to reverse a poor credit score and aim for 740 or higher. To that end, rid yourself of credit card debt or at least reduce it to no more than 25-30% of your available credit. Don't open new credit accounts or make major purchases prior to applying for a mortgage. If late payments are a problem, adopt a strict schedule to pay your bills on time. (Hint: Many banks let you authorize automatic electronic payments so that forgetfulness or procrastination won't trip you up.)


2. Bank on your savings.
The gold standard for mortgage down payments has long been 20% of the purchase price. During the housing boom, lenders catered to the nesting frenzy by doling out loans requiring as little as 5%, 3%, or even 0% down, but these liberal lending practices backfired on both banks and homeowners when the recession hit. Most financial advisers agree that the bigger the down payment, the better, but that can be problematic for singles, who don't have a second income to set aside.

Luckily, singles who are scrimping for a down payment have options to help finance that house of dreams. Some mine their retirement accounts, particularly IRAs 0r 401(k)s. An IRA is a good source of funding because there's no early withdrawal penalty if the money is used towards your first home. (Your withdrawal will be taxed, though.) Tapping a 401(k) is trickier. Although you can borrow up to the lesser of $50,000 or 50% of the sales price--and the loan won't count as debt when qualifying for a mortgage--you only have five years to pay it back with interest before taxes and penalties kick in, and if you quit your job or get laid off, the payback period is shortened to a near impossible 90 days.

A popular alternative that doesn't tamper with savings is for parents or other family members to either gift money or participate in a shared equity mortgage, contributing the down payment as a kind of loan that can be returned with interest in the form of a cut of the profit from the sale of the house.

If your father isn't Daddy Warbucks, though, there's still hope in the form of nonprofit state housing finance agencies and other down payment assistance programs, which offer cut rate loans to those of modest means. (Beware, though, that if your financial situation improves dramatically or if you try to "flip" the house, you may be heavily taxed.) Most of these are backed by the Federal Housing Administration (FHA), though some have private funding, such as Habitat for Humanity. FHA-insured loans are subject to stricter regulations since the passage of the Housing and Economic Recovery Act of 2008. For instance, the minimum down payment has increased from 3% to 3.5%, and 5-10% is even better. Also long gone is the much-abused seller down payment assistance program. However, remember that this new legislation is in place to ensure that you don't bite off a bigger mortgage than you can chew.

Now perhaps you're a single who finds yourself in special circumstances. For example, maybe you're a veteran. If so, you're entitled to a loan from the VA. Or maybe you work for a large corporation, in which case it may have a plan to assist employees with down payments.


3. Do the math.
Figure out how much house you can get for your money before you fall in love with that 10,000 square foot mall--err, manse--on a hill. A good rule of thumb is that the house you buy should cost no more than 2.5 times your annual income, but your other expenses, such as student loans, car payments, or credit card debt, may modify your maximum. You can calculate your debt-to-income ratio using a basic formula or input the relevant info and leave the dirty work to an online computer. Ideally, the total monthly cost of all your obligations should not be more than 36% of your monthly income. However, understand that even today's wary lenders may qualify you for a mortgage that exceeds what you can realistically pay each month. So determine how much you can handle yourself, and don't let desperate mortgage brokers talk you into a risky venture. They are infamous for doing just that to inexperienced singles, as we will see later!


4. Obtain your seal of approval.
The only surefire way to know what you're qualified to shop for is to get pre-approved for a mortgage. Pre-approval makes the whole process, from house hunting to bidding to closing, faster, smoother, and less anxiety-provoking. When you visit lenders, be prepared to present your bank statements, assets, proof of income, tax returns, credit history, and records of any outstanding debts.

Don't hesitate to shop around for the financial institution that can give you the best deal. The Internet is a great place to start, but don't overlook local, more personalized banks, which may be hungrier for your business. When making your decision, ask about factors like interest and annual percentage rate (APR), third-party vendor fees, which can add up quickly, rate locks, and prepayment penalties. Sound mind-boggling? See this list for a rundown of questions you should direct to any potential lender. Another talking point should be, well, points! The mortgage game is likely the only one you'll play in which buying points isn't cheating. Each point you buy, typically for a fee equalling 1% of the mortage, will reduce your interest rate by about .25%.

You may also contract a broker (or multiple brokers) to help simplify your decision, but be sure to get full disclosure of his or her fees and verify that he or she is contracted as your agent. Otherwise, that chuckling, cherub-faced broker who looks like the second coming of Santa Claus can sell you on a loan that makes him fatter in the pockets while you're left tightening your belt.

Though the U.S. isn't known as a marketplace for hagglers, this is one purchase you can negotiate. Make it known that you're considering competitive rates from other lenders. Ask your broker outright if the interest rate he or she has quoted was the lowest rate offered that day. Request that he or she make a list of all the costs associated with the loan so you can see the big picture, then bargain for a reduction on the interest rate, points, or other fees. (Check that Mr. or Ms. Craftypants doesn't reduce one fee while increasing another!)

Most importantly, stay alert to singlism. Throughout your journey to the perfect home, you may confront discrimination against singles, which is magnified if you're a woman, a person of color, or both. That's why you should take care to dress and speak professionally, familiarizing yourself with the lexicon of mortgage lenders before you meet with brokers. You may need to be especially forceful when bargaining, so an appearance of self-confidence is key.

One more thing--please remember that pre-qualification is not pre-approval. The former is a much less thorough assessment that can result in an inaccurate loan estimate, so make sure you're getting pre-approved, not pre-qualified.


5. Borrow on your future.
In the wake of the housing market collapse, be aware that you won't see the menu of loans that characterized the early half of the decade. Again, remember that this was a necessary correction that will help keep you from overtaxing a stressed budget and succumbing to foreclosure! The best choice by far, if you can qualify for it, is a fixed-rate loan, and the bigger your down payment and better your credit score, the lower your interest rate will be. Fixed-rate loans usually have a term of 15 or 30 years, and, as of this writing, the current interest rate averages 4.9% for a 15-year loan and 5.4% for a 30-year.

Unfortunately, not everyone falls in the upper end of the credit-worthy bell curve that qualifies would-be homeowners for fixed-rate loans. Before the housing bubble burst, flooding the market with foreclosures, a crop of so-called exotic loans sprang up to fill the void between homebuyers' dreams and interest rate realities. Many of these loans can be grouped under the header of adjustable-rate mortgages (ARMs), which have fluctuating interest rates. Like insidious, creepy-crawly critters lurking in the basement, ARMs come in many different breeds, shapes, and sizes, but, sooner or later, they're all liable to sting when you least expect it. Particularly dangerous varieties of ARM include the hybrid ARM, in which a fixed rate expires and becomes variable after five or ten years; the interest-only (I-O) mortgage, which permits the homebuyer to pay just interest on the loan for five or ten years; the negative amortization (NegAm) mortgage, in which not even full interest is paid each month so that it accrues on the balance; and the payment-option ARM, which advertises shockingly low-interest "teaser rates" for a few months to encourage homebuyers to dig themselves into an upside down grave.

The victims of these predatory lending practices were the most vulnerable homebuyers, the ones who couldn't afford hefty down payments and didn't qualify for guaranteed low interest rates. They were young professionals, students, and--you guessed it--singles. They gambled on rising wages and home appreciation to offset the doubled or even tripled monthly premiums they would eventually face. When the recession collected on its debt, they lost. Single women in particular were targeted by predatory lenders who convinced them that exotic ARMs were their only option even when they qualified for far better rates. Some lenders went so far as to promise that ARMs could be refinanced at a fixed rate, only to renege later, and the most unscrupulous deceived singles into believing that their ARMs actually were fixed-rate!

Nowadays, "exotics" have fallen out of favor with lenders and buyers alike. But traditional ARMs, whose main high-risk proposition is a variable interest rate, are still part of the mortgage landscape for "subprime" borrowers. Although these loans have not caused as many headaches as expected in recent months, a future resurgence in interest rates could send millions of homeowners into default. If you must accept an ARM, protect yourself by asking the tough questions upfront. Before you sign anything, you should know...

...if you will need private mortgage insurance (PMI), a common requirement for non-FHA ARMs.
...the APR, when it's increasing, and by how much.
...the length of your adjustment period (the time between interest rate changes), which can be anywhere from one month to several years.
...how the interest rate will be calculated.
...the cap on your interest rate.
...the cap on negative amortization if negative amortization is a possibility.
...how long the points you buy will apply.
...if you can convert the ARM to a fixed-rate mortgage and, if so, when and at what interest rate.
...if there will be prepayment penalties should you sell or refinance.
...the worst case scenario (i.e. your monthly payment at its highest should interest rates peak).

The last is the most important because, based on that worst case scenario, you can now conduct a thorough self-examination. ARMs work best for homebuyers who will only be paying an adjustable rate in the short term. So if you plan to sell or refinance at a fixed rate in a few years, an ARM may be worth the risk when interest rates are low, as they are now. However, if you're in it for the long haul, be honest with yourself about whether you can afford the worst case scenario. Unless you're in one of a very limited number of professions, such as law or medicine, in which the timetable for a salary increase is virtually guaranteed, you can't be sure that you'll get that promotion next year or that you'll even have a job, for that matter. And don't forget to account for ongoing expenses that might become part of your life in a few years (think car payments, student loans, and the like).

Singletude recommends that you take out an ARM only if you can carry the heaviest monthly payments in the worst case scenario on your current savings for at least six months. That way, if you are deprived of your anticipated source of income at a time when interest rates soar, you will have a cushion between you and your creditors while you find work, refinance, or sell. If you don't have access to that kind of money, then I say start saving. By the time you do, you just may qualify for a fixed-rate mortgage anyway. ;)



In the end, if you realize that you can't afford a single-home mortgage at this stage in life, don't despair! If you're determined to go it alone, you may find that a condo or townhouse is the right size at the right price for a starter. Or, if that's still beyond your reach, perhaps the goal of single homeownership will be your motivation to learn financial discipline or advance your career.

On the other hand, if you believe in teamwork, you may want to join thousands of singles who have paired up with family members or friends to purchase a house together. Since these arrangements aren't formed with the automatic protections that married couples enjoy, you should have a real estate lawyer draw up a legal agreement specifying how the costs of homeownership will be shared and how the profits will be distributed should one or both of you wish to sell. But for open-minded, flexible singles who know each other well and are committed to each other's welfare, buying a home together is the perfect strategy to break free from the tyranny of an economic system that all but restricts quality housing to married couples.

If you're a would-be single homeowner who was dreading the mortgage pre-approval process, hopefully you're now more informed and therefore more confident about applying. The better prepared you are, the more likely it is that you can avoid marital status discrimination and secure the most advantageous loan for you! When our single homebuying series continues, we'll jump right into the good stuff: house hunting. It's not just for TV. :)



If you're an aspiring single homeowner, what tips can you give to singles who are trying to improve their credit and increase their savings? If you're already a single homeowner, what advice would you give to other single homebuyers about the mortgage pre-approval process? What kind of mortgage would you recommend to first-time single homebuyers? Did you experience any singlism when applying? Would you ever consider buying a house with a friend or family member who was not a romantic partner? Why or why not?


Fun Link of the Day


Do you have a question for Clever Elsie about some aspect of the single life? Have a rant or rave about singlehood? Write in, and you just might see your question in a Singletude Q&A or your rant or rave in a Singletude Sound-off!

Single Homeowners: Ready to Be Home Alone?

Once upon a time, the "single-family home," despite its misleading name, housed a mom, a dad, two kids, and a dog...or, at the very least, a husband and wife in training for the kids and dog. If Mr. Jones pulled his Chevy into the driveway after a long day of work and disappeared into a dark, quiet house to eat take-out and watch TV by himself, then it was whispered that there must be something wrong with him. Why would one person need all that space? He must be antisocial...or a child molester...or...or...something else bad because everyone knows the key to being a good person is getting someone else to listen to you snore for the rest of your life, right?

These days, "single-family home" often has a more literal meaning as a house where a single adult lives, with or without kids. In case some marrieds are still wondering, singles buy homes for the same reasons you do--for privacy, space, an investment, stability. Apparently, these basic human needs are pretty important to American singles because, in 2008, 30% of home buyers were single according to the National Association of Realtors. Let me rephrase that for added impact: More than a quarter of U.S. home buyers are now living "home alone."

Since homes have declined in value by over 20% since their 2006 peak, now would seem to be the time to buy in for singles who have the means. But before you graduate from paying the rent to paying the mortgage, you should take an honest look at the hidden costs and upkeep required to keep those window boxes blooming and that picket fence sparkling white. Keep these factors in mind when evaluating whether single home ownership is for you:


1. The cost of owning a home extends well beyond the mortgage. It also encompasses property taxes (about 1.5% of the property value), insurance (about .5% of the property value), heating (about $101.20 per month) and electricity (about $1,182 from October to March), and routine maintenance. Some of these costs will vary by location and could be much higher. For instance, if you live in a northern state, the cost to heat your home during the winter months will jump to $2,725. Likewise, if you live in a good school district, expect to pay thousands more per year, such as the good residents of Westchester County, NY, who cough up an average property tax of $7,908 compared to their brethren in Vernon Parish, LA, who owe a scant $115. And the sad fact is that you can't call a landlord when you need a new roof or septic system, either of which can easily run you $20,000. So make sure you prepare yourself and your bank account for these additional expenses.

2. You will need to be your own handyman (or -woman!). Even if you move into a brand new house, sooner or later there will be drains to unplug, electrical outlets to install, major appliances to repair. On a more frequent basis, there will be minor tasks awaiting your tired back after a long day of work--carpets to vacuum, shelves to dust, windows to wash. In your one-bedroom apartment, you may polish off these jobs in an hour on a Saturday morning, but the average size of a house is well over 2,000 sq. ft.! And we're just talking about the inside. Outside, there will be grass to mow, leaves to rake, snow to shovel. Some of these responsibilities you will need to tackle yourself, and others will require you to hire a pro, often for a hefty $75 or $100 an hour, and take the day off to wait for him to (possibly) show up. Think about whether you have the time and physical endurance to be a good housekeeper...or whether you can afford to have someone else do it for you.

3. A house is first and foremost a place to live, not an investment. If you want to invest, try an IRA or a mutual fund, as millions of unsuspecting homeowners backed by Countrywide and Fannie Mae learned this year. That is not to say that your house won't appreciate over time, but we now know its value can also plummet, leaving you in hot water if you owe more than it's worth, a situation now facing 27% of American homeowners. So don't assume that buying is always a financially savvy decision. In fact, if your rent is at least 35% less than the annual cost of owning the home you want, re-sign that lease because you're better off renting. On the other hand, you will get a happy, healthy tax break for owning, so include it in your calculations!

4. A house is a place to put down roots and build a foundation. It is not a substitute motel room with more space and fewer bedbugs. If, like many young singles unsettled in their careers, you don't intend to stay for at least three or four years, you may want to put off buying. The costs incurred when a house changes hands can add up to a big fat loss if you have to go through the process twice in as many years, and if you sell before you've owned even that long, you'll get hit with a capital gains tax. So be sure you like where you live and that your source of income is stable.

5. A house is not automatically a home. While some singles luxuriate in the space and solitude of a house, others find that four walls and a roof don't equal a home without their roommates or neighbors across the hall. If you like to be surrounded by people all the time, living in a house by yourself can be an isolating experience. It also may raise safety concerns for those who are older, have health issues, or live in high-crime neighborhoods. If you're worried about any of these possibilities but still want a place of your own, consider condos and housing developments, where neighbors are more accessible. Also, just because you're single doesn't mean you have to live alone any more than it did when you rented. Now you can become the grouchy landlord you always hated and rent one or more rooms in your house, which will not only provide the companionship you seek but some help with the mortgage, too! (Just remember that if your tenant lives with you, there's a limit to how grouchy you can be before it's no longer in your best interest. ;) )


The five points above are not intended to discourage you from pursuing your dream of single homeownership but to remind you of the realities behind the romance of that little cabin in the woods or cottage by the shore. However, if you understand and are prepared to shoulder the responsibilities of a house, then there's no reason to wait for a significant other to enjoy the comfort, privacy, and personal space as well as the sense of pride that are part and parcel of owning your own home.

If still in doubt, test it out! You can always rent a house for a year or two to get a sense of what it takes to maintain a residence before you're the one required to maintain it. Who knows? The landlord may even offer to sell once you've established a good relationship.

Now that you're ready to join the big kids and be home alone, you face a long and sometimes arduous road from pre-approval to move-in day. Next time, Singletude will guide you down the path step by step with tips for single house hunters.


Are you a single who hopes to buy a home of your own? If so, what are some of the pros and cons that you've been considering? If you already own a home, are you glad you made the decision to buy? What advice would you give to other singles thinking about buying their own homes?


Fun Link of the Day


Do you have a question for Clever Elsie about some aspect of the single life? Have a rant or rave about singlehood? Write in, and you just might see your question in a Singletude Q&A or your rant or rave in a Singletude Sound-off!

The Hard Facts About Singles

First off, my apologies that Singletude was silent yesterday. I've been having unexplained Internet connectivity problems intermittently for a few weeks now. If you'd like to ensure that you're informed when a new blog is posted, please subscribe to the RSS feed.

To kick off Singletude's inaugural blog, I thought it would be appropriate to consider the hard facts about singlehood in the U.S. No editorializing, no opining. Just a presentation of the statistics that shape single life in this country:


--Total U.S. population, 15 years and older: 239 million1
--Number of American singles*: 118 million1
--Percentage of Americans single: 50%1

--Total U.S. households: 112 million1
--Number of single-headed U.S. households: 56 million1
--Percentage of U.S. households single-headed: 50%1
--Number of households headed by singles living alone: 30 million1
--Percentage of households headed by singles living alone: 27%1

--Percentage of U.S. population never married: 31%1
--Percentage divorced or separated: 13%1
--Percentage widowed: 6%1

--Percentage of single adults over 65 years: 16%2
--Percentage of single adults 18-65 years: 84%2

--Median age of males at first marriage: 273
--Median age of females at first marriage: 253

--Ratio of single males to single females: 86/1002

--Percentage of singles in a committed relationship: 26%4
--Percentage of uncommitted singles actively seeking a partner: 16%4
--Percentage of uncommitted singles not actively seeking a partner: 55%4

--Percentage of U.S. population with bachelor's degree, 25 years and older: 27%1
--Percentage of single population with bachelor's degree: 23%2

--Percentage of U.S. workforce comprised of singles: 44%5
--Percentage less earned income of singles: 20-25%6,7,8

--Percentage of Americans uninsured under age 65: 17%9
--Percentage of uninsured single: 60%9

--Percentage of homebuyers single: 40%8

--Percentage of congressmen married: 85%10


Okay, I know you're waiting for me to sneak in a few editorial comments between the links, but I'm a woman of my word. There'll be no waxing pedantic here...That's for tomorrow. :)


*For our purposes, "single" is considered synonymous with "unmarried." However, Singletude acknowledges that a substantial portion of unmarried people do not consider themselves single because they are involved in long-term relationships.

Sources

1. U.S. Census Bureau 2006 American Community Survey
2. U.S. Census Bureau
3. Infoplease
4. The Boston Globe
5. U.S. Department of Labor Bureau of Labor Statistics
6. Ask Dr. Salary
7. Social Science Research Network
8. Unmarried America
9. Centers for Disease Control and Prevention National Center for Health Statistics 2005 National Health Survey
10. Unmarried America